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Allen steering Charter's course

Filing: Potential plans include private bid, asset sales

Paul Allen is continuing to consider strategic alternatives for Charter Communications, the cable operator in which he is the controlling shareholder, with options including a going-private deal and the sale of the company or select cable systems, according to a regulatory filing Wednesday.

The filing with the U.S. Securities and Exchange Commission updated disclosures the Charter chairman has had to make over the years and comes at a time when Allen has begun reshaping his media and entertainment industry holdings.

The Microsoft Corp. co-founder recently moved to sell a large chunk of his stake in DreamWorks Animation and leave the studio's board (HR 8/7). At the same time, cable network Oxygen, which also is among Allen's investments, has been shopping itself to NBC Universal (HR 8/10).

Wall Street observers have long suggested that Allen could take Charter private by buying all shares he doesn't already own and later take it public again or sell to a strategic buyer.

Numerous cable firms have gone private in recent years amid lower stock prices and the feeling that investing in the business for the long term rather than for short-term earnings success is key.

Allen's filing with the SEC also mentioned a recapitalization of the debt-laden cable firm and other restructurings that would reduce its leverage as possibilities the chairman is considering. Specifically, it cited "other extraordinary corporate transactions, such as mergers or reorganization or sales of material assets" as possibilities.

One such scenario that has been popular along Wall Street is a potential sale of some cable systems, with Los Angeles and the Indiana/Ohio region often named as particularly attractive assets. Time Warner Cable could be interested in these markets, according to analysts.

Representatives for Charter and Allen declined further comment on the company's potential plans.

Oppenheimer & Co. analyst Thomas Eagan said that he doesn't expect Allen to go for an outright sale of the company but rather divest parts of it.

An all-around sale would add a lot of debt to an acquiror's balance sheet at a time of tight credit markets. Private-equity groups are not likely suitors for Charter either, according to Eagan. "PE groups usually like to lever up companies, but Charter already has high debt leverage," he said.

Market chatter about Charter's future already had grabbed Wall Street early Wednesday as the cable operator unveiled in a regulatory filing a shareholder rights plan, also known as a "poison pill."

These plans usually are designed to thwart a hostile takeover, which is why the filing initially raised some eyebrows on Wall Street. However, analysts said the filing was mainly aimed at securing the value of Charter's net operating loss carryforwards. Any seemingly small changes in Charter ownership could lead to a potential big tax bill, which the filing tries to avoid, they said.

Under the U.S. tax code, Charter can carry forward some of its substantial operating losses for accounting reasons to offset potential future profits and thereby keep its tax rate low. Analysts say these NOLs have a big value, with Eagan putting it at $7 billion.